Credit as Coping: Rethinking Microcredit in the Cambodian Context

Abstract

This article explores the uses and meanings of microcredit in one Cambodian community, drawing on qualitative research to argue that what it is claimed that microcredit provides is substantively different from what it means in practice for many rural Cambodian borrowers. In particular, my findings suggest three key disconnects between the rhetoric and reality of microlending. First, while microfinance institutions (MFIs) assert that loans are used for and repaid via microenterprise, my data suggest that loans are primarily used for a variety of non-productive purposes, and are most frequently repaid through wage labour both within and outside the country. Second, whereas MFIs assert that microcredit offers a substitute for high-interest informal loans, in practice microcredit is often used alongside informal credit and drives the need for higher-interest informal borrowing. Third, whereas loans are argued to offer proactive ways of livelihood improvement, in practice borrowers often struggle to repay loans, and debt can substantively heighten vulnerabilities. These findings challenge the primary goals and stated expectations of microcredit, and raise questions about the potential of microcredit as a development strategy in the Cambodian context.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ This is not to suggest that microfinance has received more financing and aid dollars than infrastructure, but rather to suggest that it has been placed at the top of the development agenda in meaningful ways by international institutions such as the World Bank and the United Nations. For greater discussion of microfinance as a prominent development strategy see Roy (2010).

² The CSES is a nationally representative survey which collects data at the household and village level.

³ CSES (2004, 2009). Analysis conducted by author.

⁴ Data from Thailand are not included, as MIX Market has data for only one private microfinance provider in the country and does not offer statistics on Thailand's primary microcredit scheme, which is government supported.

⁵ Quoted in Bornstein (1996, p. 331). See also Roy (2010).

⁶ Quoted in Bornstein (1996, p. 23).

⁷ CGAP stands for the Consultative Group to Assist the Poorest.

⁸ According to data from microfinance investment funds, these eight microfinance institutions are the largest, and together account for 77% of the total number of microfinance borrowers in Cambodia (Liv, 2013). All emphases are by the author.

⁹http://www.amkcambodia.com/?page = detail&menu1 = 4&article = 4&lg = en# (accessed 28 December 2013).

¹⁰http://www.amret.com.kh/index.php/en/ (accessed 28 December 2013).

¹¹http://www.hkl.com.kh/Mission_and_Vision.aspx?menuId = 1&subMenuID = 1 (accessed 28 December 2013).

¹²http://www.kredit.com.kh/index.php?option = com_content&view = article&id = 4&Itemid = 19&lang = en (accessed 28 December 2013).

¹³http://www.prasac.com.kh/index.php?option = com_content&view = article&id = 19&Itemid = 145&lang = en#vision (accessed 28 December 2013).

¹⁴http://www.sathapana.com.kh/english/otherpage.aspx?key = challengers2 (accessed 28 December 2013).

¹⁵http://www.tpc.com.kh/eng/aboutus.aspx (accessed 28 December 2013).

¹⁶http://www.visionfund.com.kh/about-us (accessed 28 December 2013).

¹⁷http://www.visionfund.com.kh/products/loans (accessed 28 December 2013).

¹⁸ Based on author's interviews with six microfinance managers and sub-branch managers in Kralanh, Siem Reap, 2011.

¹⁹ Communes (khum) are third-tier administrative units.

²⁰ The household survey was conducted between July and August 2014, with 124 households, using a stratified random sample. The research team, which consisted of the author and five Cambodian research assistants, collected complete household lists from officials in each of the 12 villages, and then used random number generators to select a 10% sample of households within each village. A total of 191 households were selected, although the final sample includes only 124 households as 67 households did not have adult household members present. In the vast majority of cases, adult household members were not present because they were working in Thailand. Household interviews were conducted with household heads, spouses or adult children who were available and able to respond to survey questions.

²¹ While we are most familiar with the concept of “saving up” where savings are accumulated and stored until they are sufficient for a large purchase, economists have documented that “saving down” is also an important strategy among poorer households. Saving down occurs where individuals borrow, spend, and then save money to repay loans. Loan repayment still relies on similar attention to spending (or saving) but occurs after the initial purchase (see Banerjee & Duflo, 2011; Rutherford & Arora, 2009).

²² All names have been changed.

²³ Money can typically be borrowed in Cambodian riels, US dollars and Thai baht.

²⁴ For example, among 74 migrants surveyed about their experiences in Thailand, 29.7% noted that they experienced a time when they wished to return but were unable to do so, 20% had been jailed or deported, 29% were not paid for work completed and 7.3% experienced direct violence from employers, middlemen or police/officials.

²⁵ The survey question read: In addition to members of the households already abroad, did someone have to migrate in order to support loan repayment?

²⁶ See Liv (2013) for a full methodological discussion. Liv's study considered all villages in the country, and data from the eight largest MFIs in operation. Using village-level data on loan accounts obtained directly from MFIs, the author defined a village as “microfinance saturated” where the total number of loan accounts among all eight providers was greater than the total number of households (i.e. market penetration >100%). The study selected 44 villages that were both “microfinance saturated’ according to their measure, and had representation from all of the eight main MFI providers. A consolidated database of all eight MFIs operating in these 44 villages was created (10 266 clients), from which a random sample of 1500 clients was drawn for the client survey (based on MFI files). From those 1500 clients, a random sample of 500 borrowers (of which 465 were interviewed) were drawn for in-person interviews.

²⁷ This study, which specifically targets microfinance-saturated areas (and which should be noted was financed by MFI investors), may not be a representative indicator of what is typical across Cambodia; however, it does offer concrete insights into what occurs in areas where microfinance is prevalent and most readily accessible.

²⁸ See footnote 26 for further details on methodology.

²⁹ The definition of insolvency noted in the report was decided in consultation with eight major MFIs and set to be consistent with the current loan appraisal policies of these organisations.